Life insurance has two main types. One is called term life insurance.
On the other hand, the other is called permanent life insurance. From the words itself, the difference is already pointed out.
Term life insurance is the type where it only lasts for a specific term. It may be 10 years or 20, 30, and so on.
It also usually does not have cash value. But it is possible for it to have one in some cases.
Meanwhile permanent life insurance lasts until the policyholder passes away. This type of policy does have a cash value.
Under each of these two main types of life insurance, there are many variations of policies. We cover some of the main ones in this article.
But one not mentioned in that article is modified whole life insurance. Here we’ll take a look at what the policy is so you can determine if it might be a good option for you and your family.
What Is Modified Whole Life Insurance?
Modified whole life insurance is a type of whole life insurance that offers less expensive premiums for a short time. Then after that short time, the premiums will start to increase.
At first, the premiums are set to a certain rate for a certain period of time. On the low end this period may last for 2 – 3 years. But often it will last from 5 to 10 years.
Then after that initial period ends, the rates will rise. And they will likely increase significantly.
This increase is generally a one time hike in rates. After which you will be paying a higher fixed rate for your policy.
Now, how does it differ with a whole life insurance? The main difference between these two types of life insurance policies is the changes on how much the premiums cost.
In whole life insurance, they offer premiums that are set for the whole duration of the policy. On the other hand, like what was said earlier, the premiums in a modified whole life insurance policy is fixed for a certain period in its first stage.
Benefits Of a Modified Whole Life Insurance Policy
Modified whole life insurance policies are great for people who are just starting out their careers. So, if you’re younger, this may be a policy you should consider.
That is because the death benefit remains the same throughout the life of the policy. So if the policyholder passes away early, the death benefit may already be there even if they’re paying lower rates. However, this isn’t always the case. Read on to find out why.
The Downsides of Modified Whole Life
Honestly, this isn’t a great option for most people. And there are a lot of downsides to this kind of policy.
First, over the long haul, it will be more expensive than just buying a “regular” whole life insurance policy.
Second, they usually have a waiting period of 2 – 3 years when you first get the policy. If the policy holder passes away during that period, the policy may not pay out the death benefit in the case of an accidental death.
Third, as we said, once the initial period of lower rates is up, your rates will go up quite a bit. And, if you can’t afford to pay your premiums at that point, then your policy will lapse. Not only would you lose your coverage, but you may get hit with high surrender fees.
Lastly, while these policies do have a cash value, it tends to grow in value much more slowly then with regular whole life policies. This is due to the lower initial premium levels.
Bottom Line
While it may seem like a great deal because of lower initial premiums, most people should not consider a modified whole life policy. There are better, cheaper options out there.
